The RBA was expected to keep rates unchanged at this week’s meeting and they did maintain the 0.10% target. These were our expectations here. However, the RBA are now at a turning point and a number of AUD shorts look very stale now. This turning point can be implied from the latest meeting statement. You can read the full text here.
The RBA held rates for three reasons
Firstly, the new uncertainties around the Ukraine crisis. Secondly, although wages have picked up (see here for why wages are key to the RBA) the RBA see them still at relatively low rates at the aggregate level. In other words, the data does not accurately reflect the reality of the wage situation due to the way that wages are computed. Thirdly, inflation is lower than in other countries and the RBA forecast the core will drop to 2.75% over 2023 as supply-side issues fade.
The turning point has been reached
For the RBA to have reached a turning point on wages we need to see these three things come together.
Firstly, the Russia/Ukraine crisis needs to fade. The RBA, and the rest of the world, will breathe a sigh of relief. Secondly, the next wage data is crucial. The RBA recognised that wage data had picked up (the last print was at 2.3% y/y), but the RBA really want to see a growth of 3% y/y for this box to be ticked. Thirdly, if inflation is more persistent than just being limited to supply chain areas then the RBA will act.
The inflation inflexion point seems to be reached now as there are no obvious reasons why wages and prices in Australia will not follow the US, Europe, and the UK. So, going forward watch for wages to move higher as this will most likely be the first hint that the RBA will be hiking rates too. AUDJPY buys on dips makes sense.